New Car Loans vs. Used Car Loans

New Car Loans vs Used Car Loans

When you are considering a vehicle purchase, one of the decisions and possibly one of the most stressful decisions can be deciding between purchasing/financing a new or pre-owned vehicle.

If you’ve been shopping, you’ve likely become aware of the differences in pricing between pre-owned and new vehicles as well as the vast array and differences in financing terms, repayment options and conditions offered by the many lenders in our marketplace.

To help with some of the confusion here are some important things to know:

Interest Rate can truly be defined as a PRICE FOR RISK.  Lenders will determine and offer interest rates to consumers based on the level of risk associated with the application.

That risk assessment is based on 4 key factors:

  1. The customer(s) ability to repay the loan
  2. The applicant(s) credit repayment history and current credit utilization
  3. The value of the asset (in this case a vehicle) as it relates to the requested amount of financing
  4. The applicant(s) residence and employment stability

New Vehicle Loans

New vehicles are, more often than not, priced higher than pre-owned vehicles.

However, it is common for a manufacturer to offer factory incentives (i.e. cash rebates, no money down or low-interest rate financing options) to customers.

Customers may see that the most notable benefit of financing a new vehicle is the low-interest rates available for qualified customers.

In addition, when purchasing a new vehicle, the manufacturer will include a comprehensive warranty (generally 36 months / 60k kms) with the sale.  While the factory warranty will cover any initial repairs that are required it is always a good decision to purchase an extended warranty where the coverage term matches the financing term.

It is a mandate at all times for a Financial Services Advisor or Manager, who works with your best interest in mind, to provide you (the buyer) with the information to make sound decisions with respect to the financing of your purchase.

Given these factors, there is little doubt as to the advantages when purchasing/financing a new vehicle. The higher prices and costs associated with buying new are certainly mitigated by the inherent value, incentives, and length of coverages and protections available to the consumer.

It is important as well when weighing your options as you are considering the purchase of a new or pre-owned vehicle that you recognize the greatest loss of market value of a new vehicle occurs within the first year of the vehicle being driven. This can be as much as a 15 per cent drop (*depending on the actual wear and tear on the vehicle) in value. Depreciation on a vehicle tends to slow after the first few years of its lifespan.

Purchasing Environmental Protection Products to protect your vehicle will help to maintain the vehicle’s market value when you look to trade or upgrade in the future.

Pre-Owned Vehicle Loans

There is no doubt that there are benefits purchasing/financing a pre-owned vehicle.

A pre-owned vehicle is priced lower than a new vehicle.

The insurance premiums and registration fees for pre-owned vehicles most often are lower as compared to new.

While the cost of a pre-owned vehicle is lower and the requested amount to be financed may be lower than that of a new vehicle, the interest rate offered by the lenders will be higher.

Noted that lenders will take into consideration the value of a pre-owned automobile may be less than the value of the loan before the loan has been fully paid off when making their lending decision.

To compensate for this risk lenders will charge a higher rate to customers who choose to purchase a pre-owned vehicle.

It is important to know that a customer will be able to secure the lowest interest rates available from a lender by ensuring that they maintain a profile that is attractive to a lender (a good ability to repay the loan, a good repayment history noted on the credit bureau with low credit utilization, good residence, and employment history).

A Financial Services Advisor or Manager should make you aware of financial protection products such as Life, Accident & Health, GAP etc. that are designed to give a certain peace of mind to protect a customer(s) financial position and credit rating.

Though the interest rate may be higher than what is offered and made available by manufacturers to the qualified customer(s) when purchasing a new vehicle, the cost savings when purchasing/financing a pre-owned vehicle may be advantageous to a customer(s) financial position, wants and needs.

Whether you choose to purchase/finance a new or pre-owned vehicle, it is important to thoroughly review needs and wants, as well as your options to help you make the decision that makes sense.

If you have any questions, you can call me directly at (204) 275 4438 or you may send me an email at

You may also go on line for a free credit evaluation or apply for a pre-approval at